Elements of a Bad Faith Claim II
Prof. Bill Long 3/9/05
The tort of bad faith developed in insurance law because of the perceived delay by insurance companies in dealing with claims. In a way this is similar to the change leading to the introduction of the incontestabililty clause about 100 years ago. Insurers were in the habit not simply of denying claims but of coming up with all kinds of explanations several years after the policy was issued as to why it ought not to cover an insured's claim. Incontestability was the way that the legislatures, courts and then the policies decided to deal with it. Fraud excepting (and even in some states this is not the rule), an insurer only has a limited time (usually two years) to contest the insured's answers or representations on an application. After that, they lose that chance.
As with incontestability, so with bad faith. I think that the egregious facts of a case like Silberg (p.373) convinced the California Supreme Court that the insurers had to be reined in a little bit. The decision, in my mind, is a rather mild one given the kind of inconvenience and distress faced by Silberg after denial of claim. So, bad faith can be used by courts as a weapon to police insurer conduct.
Continuing My Approach
I would like to see more order brought into bad faith litigation, if possible. Of course, this runs against the observation, which is certainly true, that it is egregious facts and not any particular statement of law that will drive this kind of litigation. True enough. If you can unearth statements by insurance companies or conduct by agents that expresses wishes that the insured would just die and leave you alone, or some such things, you are probably home free. However, I would like to make a modest proposal about investigation and paying claims.
My approach is to have a rebuttable presumption of insurer bad faith if the insured or the claimant has been cooperative in submitting requested and required information and there is not a satisfactory conclusion to the proceeding within 90 days after loss. Of course, the insurer could overcome the presumption by showing, in a court of law, that the loss was an excluded one, or that its delay was caused by factors that did not amount to a reckless delay on their part.
This proposal is meant to address the issues of delay, stonewalling and low balling and emphasizes that once the insured or the claimant has done what they could in providing information to the insurance company, then the clock is ticking on the insurer's desk. I might be willing to say 90 days after all relevant materials are submitted to the insurer, since some of these materials are beyond the insurer's control (like police reports or delays by the insured or claimant). In any case, I think you catch my drift.
I would also require that if the issue comes to trial, either through a declaratory judgment action by the insurer or a liability claim by the insured/claimant, that settlement conferences be required and that good faith efforts of all parties are required in settling the issue. Sometimes there might be a need to proceed to full litigation, but I think that, in general, the industry has had so much experience in claims and interpretation of policies that there are very few "curve balls" that can be thrown at it.
Finally, I would require there to be settlement efforts after trial, if the verdict is for the insured and the insurer is inclined to appeal. The point that is important for me is to try to reduce the advantage that time usually gives to the insurer. Because of the desire of injured people to try to "get back to normal life" as quickly as possible, this factor ought to be a major one in litigation and appeal.
Thus, I am not averse to state legislatures passing good faith legislation that would supplement the current legislation that just provides that claims will be settled expeditiously when liability has become reasonably clear. For example, the Oregon insurance statute provides:
"No insurer or other person shall commit or perform any of the following unfair claim settlement practices:...(f) Not attempting, in good faith, to promptly and equitably settle claims in which liability has become reasonably clear." ORS 746.230.
I think that specifiying a certain number of days has a wonderful ability, as Justice Holmes said in another context, to focus the (insurer's) mind.
I think that consumer expectations are rising all the time in our culture, and that one way in which these are rising is in the desire and need to have insurance claims settled quickly and fairly. Do we need further statutory guidance at this point?
Copyright © 2004-2007 William R. Long